No Penalty for Foreclosure of Home Loans
IF you have taken a home loan from a bank and if you have accumulated some money and you want to foreclose the loan or pay a little more than the EMI so that your Principal is reduced, you will be surprised to find that the banks actually penalise you for repaying the loan, before the stipulated time. You will have to pay a penalty for repaying!
Government, in May 2010, advised Public Sector Banks, Indian Banks' Association and National Housing Bank that no pre-payment charges may be levied by the lending institutions when the loan amount is paid by the borrowers out of their own funds; and if any pre-payment charges are to be imposed on housing loans, the same need to be reasonable and transparent and not out of line with the average cost of providing these services.
The Union Minister of State for Finance Namo Narain Meena informed the Rajya Sabha yesterday that Public Sector Banks (PSBs) have reported that by and large they do not levy any pre-payment charges when the amount is paid by the borrowers from their own sources. In terms of RBI guidelines, in the context of granting greater functional autonomy to banks, freedom has been given to scheduled commercial banks, including public sector banks, private sector banks and foreign banks, on all operational matters pertaining to banking transactions.
Already Axis Bank has announced, "zero Home loan Prepayment Charges". Maybe others will follow soon.